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Apple Punished for iTunes Success

A few weeks ago, in "Amazon MP3 Scores DRM-Free Music: What About Apple, 2008-01-10" I called Apple on Steve Jobs's claim that Apple expected to see more than half of the songs on iTunes in versions that were free of all digital rights management (DRM) by the end of 2007. I was hoping that Jobs would pull a DRM-free rabbit out of his hat during the Macworld Expo keynote address, but that obviously didn't happen. Other than tracks from EMI, music in the iTunes Store remains wrapped in Apple's FairPlay DRM.

Of course, the ability to offer DRM-free downloads from the iTunes Store isn't something over which Apple has any direct control; that's up to the major music labels that control the rights to the music that Apple sells. And therein lies the rub: the labels are unhappy that the iTunes Store has become the dominant player in the online music world, and they're desperately trying to help Amazon MP3 become a viable competitor. To that end, all four major labels have signed deals with Amazon for DRM-free tracks, whereas Apple hasn't been able to negotiate similar terms from the Universal Music Group, Warner Music Group, or Sony BMG.

The problems the recording industry has with the iTunes Store don't stop with the fact that Apple is the dominant player and showing no signs of weakness. Jobs's approach with his "Thoughts on Music" open letter (see "Steve Jobs Blasts DRM," 2007-02-12), while perhaps effective at outlining Apple's position and drawing a line in the sand, didn't make him any friends with the major labels. Some of the iTunes Store policies, such as charging a flat $0.99 price for all tracks, regardless of popularity, and refusing to sell album-only albums, have also been ill-received within the industry.

Is there any wrongdoing going on here? Initially, I wondered if there might be collusion among the labels, but my buddy Fred von Lohmann over at the EFF set me straight. Even if there were some agreement among Universal, Warner, and Sony to keep DRM-free tracks away from Apple, consumers aren't being harmed because they can purchase a better (in the sense of DRM-free), lower-priced product from Amazon MP3. And the fact that EMI has already licensed DRM-free tracks to Apple suggests there's no general agreement anyway.

So, unfortunately for those who prefer the iTunes user experience, it seems that what we have here is megacorps playing hardball with one another. Apple negotiated good terms - from the user perspective - when it started the iTunes Music Store, and the labels are regretting aspects of those agreements now that iTunes has become the leading online music retailer. Arguably, the terms Apple negotiated back then may have been a significant factor in the success of the iTunes Store, but the labels see Apple's - and users' - desire for DRM-free music as a powerful negotiating chip.

The question is what Apple will have to do to get DRM-free tracks: return a higher percentage of the profits to the labels, abandon flat-rate pricing, or offer a subscription service. Or perhaps Apple will come up with another solution along the lines of using movie rentals in the iTunes Store to make up for disappointing movie sales and a limited selection - if life hands you lemons, rent a lemonade stand.